I do not understand why they need/want a semiconductor fab? Solar I would understand. But why a semiconductor manufacturing facility now in India when more in the industry change from manufacturing to fab-lite or fabless.

No...I don't think so.
HSMC was Hindustan Manufacturing Semiconductor Co. a plan that was floated in 2007
http://www.eetimes.com/electronics-news/4187709/Infineon-backing-of-HSMC-set-to-include-equity-investment
The latest plan is a government sponsored call for proposals that has been running through 2012. A consortium including Tower Semi and IBM is known to be pitching to build a wafer fab. The decision was expected by end of 2012.

Indian infrastructure is falling apart, with frequent blackouts, unreliable water supply and bone-jarring roads. Good luck setting up a Fab in this mess.
PS: Try polling Indian Solar cell makers on their experience with manufacturing

Yet another announcement!! We have seen these come and go about Semi fabs, I can only hope it is different in 2013! India should focus on compound semi, analog, MEMS and other higher margin ones... and forget digital / ultra high volume (read: cheap & commodity-type) Si products.
The effort by India is too little, too late for next generation tech nodes. And the number of fabs are decreasing any at advance technology nodes and the investments run in billions.
MP Divakar

In my opinion, they should target high margin analog markets, 0.18/0.13 um BCD and SiGe BiCMOS processes.
I think with Tower Jazz being a stakeholder that could be one possible direction.
65/32/28 does not make sense for india since the industrial/communication market is quite big and those require robust analog process technologies...